Good day, everyone, and welcome to Standard Register's First Quarter Conference Call. Today's conference call is being recorded. As a reminder, the presentation slides for today's conference are available by accessing the Investors Center section of the Standard Register website at www.standardregister.com/investorcenter.

I would now like to turn the conference over to Carol Merry. Please go ahead.

Carol Merry

Thank you, Felicia. Good morning, and welcome to the Standard Register 2013 First Quarter Conference Call. Speakers for the call today are Joe Morgan, who's President and CEO; and Bob Ginnan, Chief Financial Officer.

Before we get started, I'd like to remind you that today's presentation may contain forward-looking language and projections. These types of comments need to be taken into consideration with the Safe Harbor statement and can be found, either on the earnings release that Standard Register issued yesterday, on the webcast slides that accompany this presentation by accessing the company website under Investor Center, or in the company's Securities and Exchange Commission filings.

In addition, we will make use of financial measures that are not in accordance with Generally Accepted Accounting Principles or GAAP. It is management's belief that the use of these measures will assist our audience's understanding of the financial position. They are not meant to be used in isolation or as a substitution for GAAP, and a reconciliation between these measures and their GAAP counterparts can be found in the earnings release.

For today's presentation, Joe will provide a few opening comments that will be followed by Bob's review of the financials for the quarter. Joe will then discuss the company's solution set and review the highlights of the quarter. Following his comments, we'll open up the call for your question.

And now I'll turn the call over to Joe for his opening comments.

Joseph P. Morgan

Thank you, Carol. And good morning, everyone, that's on the call. As you saw in our press release that we published yesterday, operational performance for the company continues to be strong. We ended the quarter with positive cash flow after meeting our pension obligation and making investments in software technology for our customer communications solutions and in systems for the overall business to improve efficiency. We expect to end 2013 with cash -- of a positive cash flow like we did in 2012.

We are not satisfied with revenue but as noted in the press release, we believe that the decline we experienced in the past 2 quarters will slow during the year 2013. In accordance with our policy of not providing guidance, I won't peg that number specifically, but we are confident that the decline in revenue will slow to the rest of the year. We are managing expenses very well in the company and proud of the team effort. Our restructuring program is on track to reach our $60 million goal, and it continues to have positive impact on overall performance.

We are satisfied with our progress in the operating performance, as I stated. And we are aggressively stepping up the pace of our transformation and eager to see the impact that, that will have on the ongoing performance results.

At this point, I'm going to turn the call over to Bob, he'll give some color on the financial performance, and then I'll come back and give some detail on the solutions that we're providing to our customers in each business.

Robert M. Ginnan

Thank you, Joe. So for the revenue for the quarter, as Joe mentioned, we were down 10.2%, $141.6 million. And if you go back to our last quarter discussion in terms of the revenue, primarily with one customer in the Business Solutions segment and then the clinical forms declined, very consistent story with last quarter.

Margin came in at 29.6% versus the prior year of 30.6%, we're actually very, very pleased with this performance. If you look at just the revenue decline and the fixed cost associated with that revenue decline, we expect to be closer to 28%. So good margin performance. SG&A, $35.7 million versus $44.4 million, you can see the progress that Joe mentioned on our plans there, very significant change in our SG&A. Leaving us with an operating profit of $6.2 million versus prior year of $3.8 million so, again, positive performance there.

If you take it all the way down to earnings per share, a loss of $0.07 versus $0.18 in the prior year as we continue to improve on the bottom line as well. I will point out that on the pension line, $6.9 million versus $6.8 million in the prior year, it appears pretty flat. However, last year, we did have a $1 million settlement charge associated with the non-qualified pension plan. So there is no settlement in the first quarter this year, however, the normal amortization is up.

Turning to the business units. The story of the revenue carries through to those 2 components that we talked about. Down 13% in Healthcare, which is driven by the clinical form decline offset by our growth in technology there. And in Business Solutions, down 8.4%, which is, for the most part, the one particular customer that we talked about on our 10-K. Margins came in at 32.2 and 28.2, so slight decline as we saw in the overall consolidated numbers, and we have profit in both business units.

Now as we start to turn away from how we've been describing the business over the last several quarters in terms of the growth products, in other words the Core versus the decline at the Legacy, we're now going to start to turn to solutions. And I'm going to give you a preview of those solutions, however, Joe is going to go into a little more in-depth as he talks about them. So if you look at Healthcare, at Healthcare Solutions primarily Marketing Communications, Patient ID and Safety, Patient Information Solutions and Document Management. When you look at those, you can clearly see the decline in the Document Management, which is where the clinical forms exist, $29.5 million to $23.4 million this year.

If you look at Business Solutions, we'll be focusing on Marketing Communications, Customer Communications, Product Marking & Labeling and Document Management. And in terms of the decline, mostly, they're in the Document Management, along with the particular customers in the Marketing Communications that we described. So that's how we'll be going forward, and Joe will go into that more in-depth as to what the solutions represent.

On the balance sheet, just to point out a couple of things. Working capital pretty flat with last year, down slightly from the end of the year. And then on our credit facility, you'll see last year we're at $47.5 million, now we're down to $41.9 million reflecting the positive cash flow last year and in the first quarter of this year. One thing I do want to point out, we did, as of March 31, enter in our last year of the 4-year contract with our credit facility. We feel very positive of getting that renewed going forward, and stay tuned on that for the rest of this year, but that's where we’re headed next on that one.

On the cash flow, as I mentioned, positive, $700,000 in the quarter. Couple of things there, one, is we did our full pension required funding of $5.8 million, in the quarter. But we also spent $4.3 million in capital. And if you go back to last year, we only spent $6 million in the entire year. So at $4.3 million, we're on track to spend $15 million to $18 million for the year, and a significant investment in the company as we go forward. So you can see the evidence of that in the first quarter here.

So kind of as a summary. Again, the operating performance is improved over last year. Positive cash flow. The evidence there that we are controlling the expenses, we did make pension contribution of $5.8 million in the quarter. And then we are also very confident in renewing our credit facility as we move throughout the rest of 2013 here. And just as a reminder, the shareholders did approve the 1-for-5 reverse split, and we'll be looking forward to that in the near future here.

So with that, I'll turn it back to Joe.

Joseph P. Morgan

Thanks, Bob. I have some comments that I wanted to make now about the transformation, give you a little bit more detail. Before I do that though, let me just make a couple of key preliminary points. One is that the strategy is sound, and what I'm about to talk about is the further explanation of the strategy. We're refining the structure of the company organizationally from an operations standpoint. And on the solutions side, that will be focused on cost improvement efficiency, but also enable growth in the areas that we need to grow to sustain the business and improve performance on a regular basis. We'll talk about the investments required, we know where those need to be made to drive the strategy. And then the communication is going to become even more clear as we go forward, the financial communication and the public communication that we put forward as will be evidenced by our new website that was launched just last night.

So as part of our transformation, we moved to a market-facing structure, as I've been talking, based on demand. Essentially, we're not going to be creating products in hopes that people will buy them, were going to invest in things that we know people will spend their money on. So we're focusing on developing and producing innovative products and services, and then packaging our solutions in the spaces where customers are spending, as I said.

As we reported in the first quarter press release, and as Bob just noted, we're no longer classifying our products and solutions as Core and Legacy. Those terms were originally deployed illustratively to point out where the demand for some of our printed products historically had been declining and having an outsize of impact on the total revenue. But our newer, mostly, technology-enabled solutions are growing and truly represents the future of the company. That's still true, but the gap between the 2 is narrow. And in addition, printed material has a place in our solution sets as we package them to appeal to marketing, IT and operations customers. So it is more representative to describe the solution sets going forward versus categories like Legacy and Core.

I thought it would be helpful on this call to spend a few minutes describing the solution sets, and I'm going to do that by business unit because there are some differences. In the Healthcare solution sets, it includes Marketing, Communications, Patient Identification and Safety, Patient Information Solutions and Document Management. Marketing Communications in Healthcare include direct marketing, promotional materials as well as customer loyalty, and point of sales material, design, kitting and fulfillment services. Software is a key part of this solution as well. And in addition, consulting and a heavy dose of product management in order -- program management in order for us to execute. So we help our customers create, we help them plan, implement, manage and then measure their programs using analytics.

Patient Identification and Safety solutions is core to what we do, it includes labels, wristbands, tags and other materials, again, also software. And it works through a system that confirms and preserves the identity and helps prevent fraud.

Our Patient Information Solutions are primarily technology center concluding our iMedConsent offering, which is the outcome of the investment that we made a year ago -- or excuse me, 2 years ago, which facilitates patient education and communication. This solution set includes software and services, and is an area that has been growing where we expect additional growth, and is now a platform for the future of the company.

In the first quarter sales of clinical forms continued to decline. Patient Information Solutions was the growth engine in Healthcare for the quarter. iMedConsent sales and sales of other technology-enabled solutions increased about 30%, which partially offset declines in Marketing Communications, Patient Identification and the more traditional Document Management. We have continued to see great sales activity in the first quarter, and we have a very good and strong technology pipeline going forward.

For Business Solutions, the solution sets are similar but slightly different. Marketing Communications, Customer Communications, Product Marketing and Labeling and Document Management. In Marketing Communications we do many of the same things, the audiences are slightly different, all technology enable. We sell to their customers and where we can help the migration to digital and multi-channel communications, we do that. Measurement and analytics are key benefits for our customers. A key point in Marketing Communications is that print is an element of this, but the most important thing is we've identified an ability for our company to be media agnostic and then for us to provide a solution that enables our customers to repurpose their content in ways that help them achieve their ultimate outcome, which is growing their business.

Customer Communications are transactional, data driven programs such as statements and billings and benefit enrollments, as well as services like including kitting and fulfillment. Product Marking and Labeling is where our in-mold labeling resides, as well as our other labeling products, including manufactured part solutions, which is a highly sophisticated and regulatory-oriented labeling product. In this area as well, which has traditionally not been the case, we use software to help our customers manage their inventory, but also to give us the ability to enhance the creativity that we bring forward. As time goes on, data will become a big part of this category, data management.

In the Document Management solution set is where many secured financial service transaction documents and customer-specific materials are centered. Services such as design and print management are also categories -- categorized here. In the first quarter, Product Marketing and Labeling was a positive contributor due to improvements in the economic conditions within the industrial segments that we serve, as well as growth in in-mold labeling and our Mexico operation. More than half of the decline in revenue in Business Solutions was due to reductions in volume from the large financial services customer that we've been talking about, which this will likely be one of the last times we speak to that. As we have also previously noted, the company remains a valuable customer with new programs underway.

During the quarter, we launched an upgrade to current customers of our SMARTworks local marketing solution. We've talked about SMARTworks for years and it continues to be critical to our long-term strategy. And just last week, we launched the marketing supply chain package solution that helps position Standard Register as a single source provider of services for managing marketing campaign that allow for workflow communication and analytics. This new offering will be managed out of our new Center of Excellence located in Jeffersonville, Indiana, which is scheduled to come online in the third quarter.

I want to talk for a minute about the Center of Excellence. It's a good example of the strategic investments we're making in supporting growth solutions for our business. It's also reflective of a strategic statement that we're making about the future of print and fulfillment, as it relates to the business that we're in. Service is a very important component of the go-forward plan and recognizing that on-demand is moving to minutes, not days. This center will give us the ability to execute in a flawless way in support of our customers in each market that we serve. It will support digital printing, kitting and distribution. It will also allow us to operate more efficiently, advance our digital printing capabilities and offer more flexible delivery options for our customers.

We've also made investments in the SMARTworks platform, as I mentioned. Both business units used this technology in a slightly different way. As the desktop moves to mobile, we have the technology to help our customers migrate with solutions unique to their individual industries.

We're expanding our warehouse space at our facility in Mexico to support growth in labeling and other solutions. While we're expanding the warehouse space, we're also enhancing the capability that we have in that facility that includes digital labeling, as well as digital printing and kitting. We've invested in systems to improve efficiency and informed management decisions. And we're looking for acquisitions to round out our Healthcare and Business Solutions strategies.

As you know, and we spend a lot of time talking about on these calls, the size of our pension obligation is large, and it does impact our ability to invest in growth as much as we would like. But we are investing strategically and prudently to advance our business, and we're confident in the choices we have made. We're not as big a company as we once were, however, what that does enable us to do is be more nimble and respond more effectively to our customers as they advance and require us to do new things for them. We're going to take advantage of that attribute.

Our focus for the second quarter and throughout the year is on continuing to generate profit and positive cash flow while investing to support our strategy. Our business units are bringing new ideas to customers and being their go-to dependable source for workflow, communications and analytics. They are then attached with commercializing innovative new solutions, which will then generate profitability revenues for us and grow the customer's revenue on their side.

So let me summarize quickly the quarter. Our key ratios of financial health continue to be strong, our technology-enabled solutions are driving set sales, sometimes is enabling the sale of certain products and in other cases, being the solution itself. Operating performance continues trending upward and we are on track with our restructuring program as well. We are investing to support growth, we're not sitting idle, we're aggressive, we're creative. And I see great things coming for the company. I'm very confident, as I stand here today on this call with the things that our business units are doing. Our Healthcare strategy is more clear than ever, and we're seeing traction in the marketplace in the areas that we need to have traction, and we're leveraging the macro dynamics that are occurring in this very important part of our GDP.

And then on the other business, as we've compressed from 3 to 1 business unit, the strategy is enhanced as a result. And we're now able to bring all of our solution sets to the world's leading companies that are in those business -- they're in that business in a way that will ultimately lead us to a leadership position in the solutions that we've chosen to focus on.

So with that, I'd like to turn it back for questions. And I will be happy to -- Bob and I will be happy to answer anything that's on your mind.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Joe Perdue with Wells Fargo.

Joseph Perdue

On the last couple of quarters, we were talking about confident in sales and growth, and now the thought is that the decline will slow. And with the new plant in Jeffersonville, Indiana, and you investing for growth, can you give us any indication of when there might be actual sales growth again?

Joseph P. Morgan

Well, let's -- let me talk about growth in a couple different ways. Growth in aggregate is something that we're not really referencing right now. That's really what the slow in decline is in aggregate. What we're focusing on is growth in solutions that have the greatest growth potential, which we have evidence of in things like our software and services and Healthcare and our Product Marking & Labeling and Business Solutions. What we're focusing on now is getting to grow in those new solutions that have the greatest potential for the future. As that happens, Joe, that will become a larger part of our business which, ultimately, will lead to a growth company in aggregate. We're not in a position yet to prognosticate on that. So that's kind of the path.

Joseph Perdue

Very good. And then I was wondering about the funding. I was pleased to see the Jeffersonville, Indiana, facility as a great vote of confidence on future growth and prosperity. How are you funding that whole project and what's the term of getting that paid for?

Joseph P. Morgan

Yes, Bob, why don't you...

Robert M. Ginnan

I think when you look at the investment there, Joe, you kind of break it down into 2 components. Most of the funding will occur through how we operate the business, in other words, we spend a lot of money into our facility today and we will redirect that to there. But in terms of the capital investment, we'll probably spend a couple of million dollars this year as part of our capital plan. As I mentioned, we're going to spend $15 million to $18 million for the year, we spent about -- lower 4 in the first quarter. So that's part of that $15 million to $18 million that we talked about.

Joseph Perdue

Okay. Good. And on your line of credit that you're in the fourth year of, are you looking to expand that or maybe increasing that? Because it looks like you're also thinking about doing some add-ons to the business.

Joseph P. Morgan

I think as we look at that, we're always looking for opportunities to do whatever we can to maximize that. And we're just kind of early in that process right now but, obviously, we want to take full advantage of that.

Operator

[Operator Instructions] And there are no further questions at this time. I would now like to turn the conference back over to Ms. Carol Merry for closing remarks.

Carol Merry

All right. Thank you. Thank you, everyone, for joining us today. And we look forward to talking to you again next quarter. This will be the conclusion of our call.

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